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New Donation Laws Information
As of January, 2005 car donations affect your taxes differently. Now you can only deduct for the amount the car is sold, as opposed to the Kelley Blue Book value.
Before 2005, a tax deduction was received for the Kelly Blue Book value of the car. Therefore, if someone had a car that Kelly Blue Book says is worth $2200, they would receive a $2200 tax deduction, even if the charity received $700 when it was sold at auction because the car had a bad motor. The donator would receive a tax break for a $2200 donation, even though they only donated a vehicle worth $700.
The IRS noticed that this was going on, so they decided to change the law so people receive a tax deduction for the actual value of the car. Now, if someone donates a car to a charity, he receives a tax deduction only for the amount of money the car sells for in an auction. This is often much lower than the Kelly Blue Book price. This means that currently if someone donates a car that is valued at $2200 per the Kelly Blue Book price, but it only sells for $700 in an auction, the tax deduction received is only $700.
Let’s pretend there is a person in the 30% tax bracket. His vehicle is worth $3000 according to the Kelly Blue Book, but it has a wrecked motor and a bit of body damage. Due to the problems with the car, it would sell at auction for only $700. Before the change of law in 2005, this person would have saved $900 in taxes. With the current laws, he would only save $210. Instead of saving $210 on taxes by donating his car, he could receive $700 cash for a company like ours.
If you would like more information regarding this, refer to the following links: